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Quality Systems, Inc. Reports Fiscal 2018 First Quarter Results
August 1, 2017 at 6:35 AM EDT

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2018 first quarter ended June 30, 2017.

"Fiscal 2018 is off to a very solid start, as we saw strong financial results and continued to make progress on our strategic plan. During the quarter, we leveraged our platform as a service strategy to further enhance our solution offerings and enhance the value we bring to our clients. Furthermore, the significant modifications we've made to our business model will simplify the process and increase the ease of partnering with NextGen going forward. I feel very confident in our position within the market and our ability to drive bookings growth in the back half of fiscal 2018," commented Rusty Frantz, President and Chief Executive Officer of Quality Systems, Inc.

Revenues for the fiscal 2018 first quarter of $130.9 million compared to $122.2 million a year-ago. On a GAAP basis, net income for the 2018 first quarter was $3.9 million, compared with net loss of $647 thousand in the 2017 first quarter. Non-GAAP net income for the 2018 first quarter was $10.5 million compared with non-GAAP net income of $9.3 million in the 2017 first quarter.

On a GAAP basis, fully diluted earnings per share was $0.06 in the fiscal 2018 first quarter compared with a loss per share of $0.01 for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2018 first quarter was $0.17 versus $0.15 reported in the first quarter a year ago.

Fiscal 2018 Financial Outlook

For the fiscal year 2018, the Company is reiterating its revenue outlook of a range of $512 million and $530 million and adjusting its non-GAAP EPS from a range of $0.66 to $0.74 to a range of $0.62 and $0.70 to account for incremental investments in the EagleDream Health platform.

Corporate Event

In other news, Jocelyn A. Leavitt, the Company's Executive Vice President, General Counsel and Secretary, informed the Board of Directors of the Company on July 31, 2017 that she will be resigning from her position. Ms. Leavitt has been with the Company since December 2011, serving first as the Company's Vice President, Associate General Counsel before being appointed General Counsel in June 2013. Ms. Leavitt is resigning to pursue other interests and will remain with the Company until her successor is appointed to ensure a smooth transition. The Company wishes her well in her future endeavors.

Conference Call Information

Quality Systems will host a conference call to discuss its fiscal 2018 first quarter results on Tuesday, August 1, 2017 at 8:30 AM ET (5:30 AM PT). Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 866-750-8947 or 720-405-1352 for international callers, and referencing participant code 51776315 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of the company's web site and an audio file of the call will also be archived for 90 days at investor.qsii.com. After the conference call, a replay will be available until August 7, 2017 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 51776315.

About Quality Systems, Inc.

Quality Systems, Inc., known to our clients as NextGen Healthcare, provides software, services, and analytic solutions to the ambulatory care market. We are a healthcare information technology and services company that delivers foundational capabilities to organizations that want to promote healthy communities. Our technology provides a customizable platform that empowers physician success, enriches the patient care experience and lowers the cost of healthcare. Visit www.qsii.com and www.nextgen.com for additional information.


This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company's ability or inability to attract and retain qualified personnel; possible regulation of the Company's software by the U.S. Food and Drug Administration; changes of accounting estimates and assumptions used to prepare the prior periods' financial statements; disruptions caused by acquisitions of companies, products, or technologies; and general economic conditions. A significant portion of the Company's quarterly sales of software product licenses and computer hardware is concluded in the last month of a fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company's revenues and operating results are very difficult to forecast. A major portion of the Company's costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company's period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.


This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures, which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than Quality Systems, which limits comparability between companies. The Company believes that its presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding the Company's financial condition and results. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. The Company calculates non-GAAP diluted earnings per share by excluding net acquisition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, restructuring costs, net securities litigation defense costs, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company's longer-term operations. The normalized non-GAAP tax rate applied to each quarter of fiscal year 2017 and expected to be applied for each quarter of fiscal year 2018 period is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. The Company intends to re-evaluate this normalized non-GAAP tax rate on an annual basis or more frequently if any significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or changes in expectations regarding tax regulations.

The Company's future period guidance in this release includes adjustments for items not indicative of the Company's core operations. Such adjustments are generally expected to be of a nature similar to those adjustments applied to the Company's historic GAAP financial results in the determination of the Company's non-GAAP diluted earnings per share. Such adjustments, however, may be affected by changes in ongoing assumptions and judgments as to the items that are excluded in the calculation of non-GAAP adjusted net income and adjusted diluted earnings per share, as described in this release. The exact amount and probable significance of these adjustments, including net acquisition costs, net securities litigation defense costs, and other non-run-rate expenses, are not currently determinable without unreasonable efforts, but may be significant. These items cannot be reliably quantified or forecasted due to the combination of their historic and expected variability. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.





(In thousands, except per share data)


  Three Months Ended June 30,
2017   2016
Software license and hardware $ 12,800 $ 14,789
Software related subscription services 23,906   19,875  
Total software, hardware and related 36,706 34,664
Support and maintenance 41,116 38,007
Revenue cycle management and related services 21,403 21,053
Electronic data interchange and data services 23,312 22,124
Professional services 8,385   6,357  
Total revenues 130,922   122,205  
Cost of revenue:
Software license and hardware 5,373 7,120
Software related subscription services 10,430   9,087  
Total software, hardware and related 15,803 16,207
Support and maintenance 7,623 6,568
Revenue cycle management and related services 15,361 14,231
Electronic data interchange and data services 13,158 12,763
Professional services 7,224   7,046  
Total cost of revenue 59,169   56,815  
Gross profit 71,753 65,390
Operating expenses:
Selling, general and administrative 42,977 40,581
Research and development costs, net 19,989 18,224
Amortization of acquired intangible assets 2,047 2,704
Restructuring costs   3,753  
Total operating expenses 65,013   65,262  
Income from operations 6,740 128
Interest income 9 8
Interest expense (677 ) (1,013 )
Other expense, net (22 ) (87 )
Income (loss) before provision for (benefit of) income taxes 6,050 (964 )
Provision for (benefit of) income taxes 2,154   (317 )
Net income (loss) $ 3,896   $ (647 )
Net income (loss) per share:
Basic $ 0.06 $ (0.01 )
Diluted $ 0.06 $ (0.01 )
Weighted-average shares outstanding:
Basic 62,636 61,179
Diluted 62,643 61,179



(In thousands, except per share data)


  June 30, 2017   March 31, 2017
Current assets:
Cash and cash equivalents $ 23,337 $ 37,673
Restricted cash and cash equivalents 5,915 4,916
Accounts receivable, net 81,605 83,407
Inventory 100 158
Income taxes receivable 2,303 2,679
Prepaid expenses and other current assets 18,283   17,969  
Total current assets 131,543 146,802
Equipment and improvements, net 27,832 27,426
Capitalized software costs, net 17,948 13,607
Deferred income taxes, net 12,266 11,265
Intangibles, net 79,165 69,213
Goodwill 202,272 185,898
Other assets 18,883   19,010  
Total assets $ 489,909   $ 473,221  
Current liabilities:
Accounts payable $ 5,007 $ 4,618
Deferred revenue 51,471 52,383
Accrued compensation and related benefits 14,388 24,513
Income taxes payable 2,265 405
Other current liabilities 32,618   46,775  
Total current liabilities 105,749 128,694
Deferred revenue, net of current 1,438 1,394
Deferred compensation 6,386 6,629
Line of credit 45,000 15,000
Other noncurrent liabilities 17,148   16,461  
Total liabilities 175,721 168,178
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 63,370 and 62,455 shares at June 30, 2017 and March 31, 2017, respectively 634 625
Additional paid-in capital 233,742 228,549
Accumulated other comprehensive loss (372 ) (358 )
Retained earnings 80,184   76,227  
Total shareholders' equity 314,188   305,043  
Total liabilities and shareholders' equity $ 489,909   $ 473,221  



(In thousands, except per share data)



  Three Months Ended June 30,
2017   2016
Income (loss) before provision for income taxes - GAAP $ 6,050 $ (964 )
Non-GAAP adjustments:
Acquisition costs, net 549 2,736
Amortization of acquired intangible assets 5,448 5,732
Amortization of deferred debt issuance costs 269 269
Restructuring costs 3,753
Securities litigation defense costs, net of insurance 446 364
Share-based compensation 2,041 1,156
Other non-run-rate expenses* 263   401  
Total adjustments to GAAP income before provision for income taxes: 9,016   14,411  
Income before provision for income taxes - Non-GAAP 15,066 13,447
Provision for income taxes 4,595   4,101  
Net income - Non-GAAP $ 10,471   $ 9,346  
Diluted net income per share - Non-GAAP $ 0.17 $ 0.15
Weighted-average shares outstanding (diluted): 62,643 61,676

* For the three months ended June 30, 2017 and 2016, other non-run-rate expenses consist primarily of professional services costs not related to core operations.

Quality Systems, Inc.
Jamie Arnold, 949-255-2600
Chief Financial Officer
Westwicke Partners
Bob East or Asher Dewhurst

Source: Quality Systems, Inc.

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